Super tax won’t affect corporate sector profitability: expert

Economic experts say the super tax will not reduce the profitability of the corporate sector. Photo: The News/File

ISLAMABAD: Experts have made startling revelations about corporate sector tax payments and argued that effective tax rates range from 1.51% to 2.93% between tax year 2015 and 2021, against corporate tax rates of 29-33%.

A tax expert has made an interesting analysis to demonstrate that the corporate sector contributes peanuts and that there is no justification for clamoring about raising taxes through a 10% super tax imposed on 13 major sectors.

Actual tax data shows why an increase in corporate tax rates is not really a big deal for companies working in Pakistan due to the legal means of tax avoidance they employ. The analysis was made on the basis of tax returns filed by companies which approach around 44,000 on average each year.

It shows that the reported turnover of the corporate sector was Rs 13 trillion in the tax year 2015 and increased to Rs 16.6 trillion in the year 2015. tax year 2018. Total business turnover soared to Rs 20.1 trillion in the tax year. 2021 against Rs 21 trillion for the 2020 tax year.

The taxable income declared by the enterprises amounted to 887 billion rupees for the 2015 tax year, 1.01 trillion rupees for the 2016 tax year, 1.13 trillion rupees in 2017, 1, 16 trillion rupees in 2018, 1.2 trillion rupees in 2019, 1.2 trillion rupees. 46 trillion in 2020 and Rs 1.7 trillion in the tax year 2021.

The tax expert argued that there was an interesting point that if the tax rates had been applied as they are to the taxable income which is currently on the rise compared to the 55% in the scenario post-super tax, there should have been a tax collection of Rs292 billion in tax year 2015, Rs324 billion in 2016, Rs351 billion in 2017, Rs350 billion in 2018, Rs371 billion in 2019, Rs423 billion in 2020 and Rs 507 billion in the 2021 tax year.

Now here comes the real catch, because companies actually paid at the effective tax rate 26 billion rupees in the tax year 2015, 26 billion rupees in 2016, 20 billion rupees in 2017, 18 billion rupees in rupees in 2018, 17 billion rupees in 2019, 22 billion rupees in 2020 and 37 billion rupees in 2021.

It shows that the effective tax rate for the corporate sector reaches a maximum of 2.9%. However, companies claimed refunds of 153 billion rupees in 2015, 164 billion rupees in 2016, 186 billion rupees in 2017, 216 billion rupees in 2018, 214 billion rupees in 2019, 216 billion rupees in 2020 and 155 billion rupees in 2021.

The total turnover declared by the companies is 20.1 trillion. The declared taxable income is 1.7 tr, so the overall taxable income or profit is only 4% of the turnover, which shows the authorized deductions and exemptions as well as the erroneous declarations. Knowing how much tax businesses can avoid under legal cover is exactly why there’s usually no uproar, except just enough to show and tell – superficial on every level. And here’s another interesting fact: because there’s no tax avoidance, no allowable deductions against the super tax, that’s why there’s so much shouting, especially from the business. The super tax would mean a direct tax deduction on their “ability to pay taxes” and so it pinches a lot.

Another interesting point to note is that the profits of the top 100 companies in the stock market jumped by 47% in 2021, reaching an all-time high of Rs 940 billion. The financial sector accounts for 1/3 of total profits, followed by the oil and fertilizer sectors. Interestingly, the profits of the financial sector are driven by higher interest rates and government borrowing, so they only get their profits from the government. Bank interest margins in Pakistan are among the highest in the world.

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